Higher-yielding currencies including Mexico’s peso and South Africa’s rand rallied versus the dollar as a tentative U.S. agreement to extend the nation’s borrowing ability prompted an increase in investors’ risk appetite.
The yen fell versus all of its 16 most-traded peers amid ebbing haven demand as Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell announced an accord to end the government shutdown and push fiscal deadlines into next year. New Zealand’s dollar reached a four-week high as inflation fueled bets interest rates will rise.
“Currencies are responding to increasing hope that the situation will be resolved in the next 24 hours or so,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. The longer-term effect of the crisis is that “it’s a growth shock to the economy. It’ll have a dollar-negative effect.”
The peso strengthened 1.2 percent to 12.8424 to the greenback at 5 p.m. New York time and touched 12.8366, the strongest level since Sept. 24. The rand rallied 1.2 percent to 9.8648 per dollar and reached 9.8594, the strongest level since Sept. 25.
South Africa’s key interest rate is 5 percent, compared to a range of zero to 0.25 percent in the U.S. Mexico’s benchmark is 3.75 percent.
The yen fell 0.6 percent to 98.77 per dollar and reached 98.97, the weakest since Sept. 27. The Japanese currency dropped 0.7 percent to 133.67 per euro.
The dollar was little changed against the euro at $1.3534 after weakening earlier as much as 0.3 percent and appreciating 0.4 percent. It touched $1.3473, the strongest since Sept. 30.
“We’ve just had a hairy run thanks to Washington, and that hasn’t caused euro-dollar to break,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a phone interview. “I don’t think the catalyst to buy dollar on this current resolution is sufficient to drive the dollar higher at this point.”
A gauge of price swings among Group of Seven nations’ currencies rose from the lowest level in almost nine months. JPMorgan Chase & Co.’s G-7 Volatility Index increased to as much as 8.27 percent after dropping to 8.17 percent yesterday, the least since Jan. 23. The 2013 average is 9.46 percent.
U.S. stocks climbed, with the Standard & Poor’s 500 Index rising 1.4 percent.
The Senate and House plan to vote on the debt plan later today, and the White House press secretary said President Barack Obama supports the deal. House Speaker John Boehner said in a statement Republicans won’t block the compromise.
The framework negotiated by Reid and McConnell would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations. Senate opponents said they won’t stall a vote, and the White House press secretary said President Barack Obama supports the deal.
The agreement concludes a four-week standoff that began with Republicans demanding defunding of President Barack Obama’s 2010 health-care law, and objecting to raising the $16.7 trillion debt limit and funding the government without policy concessions. A partial government shutdown has been in place since Oct. 1. They achieved almost none of those goals.
“This is far less than many of us had hoped for, frankly, but it’s far better than what some had sought,” McConnell said.
New Zealand’s dollar, nicknamed the kiwi, climbed after the statistics bureau said consumer prices increased 0.9 percent in the third quarter, the fastest pace since the period ended June 2011. An industry report released this week showed home prices climbed to a record in September.
“New Zealand is almost the only developed country with a rate increase coming into sight, so the kiwi is likely to remain strong,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. Markets are expecting the central bank to raise interest rates “because of the resilient economy and inflation concerns.”
The kiwi appreciated 0.5 percent to 84.25 U.S. cents and touched 84.45 cents, the highest level since May 9.
The Czech koruna dropped against the majority of its 31 most-traded counterparts, falling to a two-week low against the euro, after Lubomir Lizal, a central-bank board member, said economic developments point to need for easier monetary policies. The currency lost 0.3 percent to 25.682 against the shared currency. It touched 25.714, the weakest since Oct. 1.
The dollar declined 0.9 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-country currencies. The euro gained 0.8 percent, while the yen declined 0.5 percent.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, rose as much as 0.2 percent today and fell as 0.2 percent before trading little changed at 1,011.89.
Trading in over-the-counter foreign-exchange options totaled $49 billion, from $46 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8.6 billion, the largest share of trades at 17 percent. Options on the euro-dollar rate totaled $7.1 billion, or 14 percent.
Greenback-yen options trading was 62 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 90 percent above average.